Is free credit-card travel insurance really free?

Complaints about card-based travel cover prompted an ASIC review and new rules.

The June long weekend heralded the start of the ski season and that means plenty of snow-loving Australians will head to the slopes either locally or overseas. Taking out travel insurance is a no-brainer and if you’re relying on complimentary insurance provided by your credit card, new rules make it easier to know what you’re covered for.

Free travel insurance can seem like a handy credit card perk. But it can be an area of great confusion for cardholders. For starters you certainly want to check if this sort of insurance covers you for participating in activities with high accident rates, such as skiing.

In response to complaints made about card-based travel cover, the Australian Securities and Investments Commission (ASIC) recently reviewed 17 credit card brands to see how disclosure could be improved.

Among the key problems reported, cardholders are often uncertain about what they have to do to kickstart their travel cover. Others are unsure about whether a supplementary cardholder would be covered by the free travel insurance.

Following ASIC’s investigation, credit card issuers are now required to provide much clearer information on these sorts of issues, and that’s a good thing.

Nonetheless the onus is very much on cardholders to read the terms and conditions that apply to their credit card. Importantly, know what you need to do to activate the travel cover.

In many cases you need to pay for all or part of your airfare using the credit card. This can be easily overlooked if you hand cash to a travel agent or if you pay for tickets using BPAY to avoid credit card surcharges.

If you’re using frequent flyer points to buy an air ticket, be sure to ask your card issuer if your travel cover will apply. Simply assuming you’re covered could be a costly mistake if you haven’t done what it takes to activate the policy.

Be aware too, if you have any special needs like a pre-existing medical condition, it could pay to arrange your own cover. If you're planning an extended trip take a good look at the card’s fine print. Card-based travel insurance often only remains valid for a few months and unlike separate policies you can’t usually extend the period you’re covered for.

For the record, card-based travel cover is far from free. ASIC found credit cards that provide 'complimentary' travel insurance typically have annual fees ranging from $87 to over $500. If the lure of free insurance is seeing you pay over-the-top card fees, you’re probably wasting money.

Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.
 

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